Sell in May: Was it a good idea?

Posted By Silver Prices On July 9, 2007 @ 1:36 pm

The old adage of ‘Sell in May and Go away’ has served many investors well in the past but we ask “was it a good idea this year”?

HUI

Chart of the HUI 09jul07

If we take a look at this recent chart of the HUI we can see that indeed May was a month when the index fell. However it did not fall for very long and now appears to have staged a neat recovery. We guess that if you are a small investor able to move funds quickly in and out of the market then you could have liquidated your positions in early May and took a vacation. June has been a little up and down with the HUI going close to the 320 mark on two occasions. This raises a number of questions: Did you get back in at the end of June or are still out of the market waiting for lower entry points to come your way?

Back to the chart we can see that the HUI has risen suddenly from the 320 levels to 352 registering a gain of 32 points or 10%. This may be a short-lived rally or it may be the start of something much bigger. As you know we decided to stay with our [1] gold and [2] silver mining stocks and sit through the summer doldrums, as it appeared to us that this summer might be different. The summer still has some time to run so we will have wait and see what transpires and let history tell us whether or not this old adage applied to 2007.

‘Come back on Labour Day’ usually follows as a suitable time to re-enter the market, which is the first Monday in September in the United States.

If we use silver as an example we can see the following: In May 2006 the price of silver was $15.00 and its 200-Day Moving Average price was at $10.00, [3] silver was over bought and so corrected. Now, in May 2007 silver was $13.00 and its 200-Day Moving Average was $12.00 and so silver has corrected again to trade just under this average. In 2006 silver suffered a $5.00 fall to revisit its long term moving average. As we write silver is already there so we think that the chances of silver going very much further down are rather slim. In fact after such along consolidation period we are expecting the opposite.

Silver chart 09jul07

This could be a fairly moderate summer rally but if you feel like we do that there is underlying strength in this market sector that is slowly beginning to awaken, then your re-entry point deserves considerable thought on your part, if you are not to miss what we believe is a huge rally coming to a screen near you shortly.